Hedge funds keep cutting bets on oil rally as crude keeps rallying

New York: As Brent oil prices climb, money managers are feeling less and less bullish.

Hedge funds cut their net-long positions — the difference between bets on a price increase and wagers on a drop — for a fifth consecutive week, the longest stretch of declines since November 2016. The reductions came just before Brent crude oil surged above $80 a barrel this week for the first time since 2014.

“Positioning was long coming into the year, and you have the June 22nd Opec [Organisation of Petroleum Exporting Countries] even on the horizon,” said Chris Kettenmann, chief energy strategist at Macro Risk Advisors LLC. “People likely have made money. You can take some profits and then get back in should they continue to be consistent in their messaging.”

Opec, along with Russia, will meet next month to review production limits imposed in late 2016 that have helped erode inventories and revive slumping prices. Brent and the US benchmark West Texas Intermediate crude are up 18 per cent this year.

Banks from Barclays Plc to Morgan Stanley boosted their forecasts of Brent prices this week, and Total SA chief executive officer Patrick Pouyanne said he wouldn’t be surprised to see $100 (Dh367.30) oil, which hasn’t been reached since September 2014.

Yet, some remain cautious. Russian Energy Minister Alexander Novak is meeting with Saudi Arabia’s Khalid Al-Falih in St Petersburg later this month to discuss the oil market. The talks will continue when Opec and its allies gather in Vienna next month, Novak said.

“We need to look at a longer period — at how stable this price is, how volatile or not volatile it will be, what factors affect it,” Novak said Friday. “So let us see. We need to analyse the situation over a longer term.”

Changing stories

Hedge funds reduced their Brent net-long position by 3.7 per cent in the week ended May 15 to 548,555 contracts, according to ICE Futures Europe data on futures and options released Friday.

The WTI net-long position dropped by 6.2 per cent to 385,283 futures and options, according to US Commodity Futures Trading Commission released Friday. It was the biggest reduction in six weeks. Longs declined 4.9 per cent, while shorts jumped 15 per cent. Total positioning on WTI is at the lowest since August.

“You’re heading into that time when Opec can start to change its story,” said Rob Haworth, who helps oversee $151 billion in assets at US Bank Wealth Management in Seattle. At the same time, “we’re starting to get into that summer driving season, which is past peak refinery demand, and so if you’re in a seasonal trade, you need to start to unwind that.”

Based on some technical analysis, the rally might not continue. Brent’s 14-day relative strength index is above 70, a level that signals the commodity is overbought.

“I do think we’re set for a retreat,” said Walter Zimmermann, chief technical analyst at ICAP-TA. “This is herding behaviour. Everybody is convinced we are going to $100.”

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